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Covid‐19, Economic Growth and South African Fiscal Policy

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  • Philippe Burger
  • Estian Calitz

Abstract

Following years of fast‐rising debt levels, we show that the Covid‐19 crisis worsened an already deteriorating fiscal position in South Africa. To restore fiscal sustainability in the aftermath of the crisis some commentators argue that higher government expenditure will grow GDP sufficiently to stabilise the debt/GDP ratio. We reject this, showing that although a real increase in expenditure stimulates economic growth (a short‐run, once‐off effect), the public expenditure/GDP ratio exceeds the level at which an increase in the ratio positively impacts growth. We then explore the past efforts of government to maintain or restore fiscal sustainability by estimating a fiscal reaction function using a Markov‐switching model. Following the impact of the Covid‐19 crisis on the budget, we subsequently establish the deficit, expenditure and revenue adjustments that the government will have to make to restore fiscal sustainability. Finally, we consider the merits of introducing a debt ceiling.

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  • Philippe Burger & Estian Calitz, 2021. "Covid‐19, Economic Growth and South African Fiscal Policy," South African Journal of Economics, Economic Society of South Africa, vol. 89(1), pages 3-24, March.
    • Handle: RePEc:bla:sajeco:v:89:y:2021:i:1:p:3-24
    DOI: 10.1111/saje.12270
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    3. Sarb, 2020. "OBEN 2001 November 2020," Occasional Bulletin of Economic Notes 11003, South African Reserve Bank.
    4. Baneng Naape & Ndzalama C. Mathebula, 2022. "How do petrol prices respond to variations in crude oil and the exchange rate? Evidence from South Africa," Journal of New Economy, Ural State University of Economics, vol. 23(3), pages 23-42, October.
    5. Joseph Mawejje & Nicholas M. Odhiambo, 2022. "Macroeconomic determinants of fiscal policy in East Africa: a panel causality analysis," Journal of Economics, Finance and Administrative Science, Emerald Group Publishing Limited, vol. 27(53), pages 105-123, February.

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    More about this item

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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